The US dollar continues to bounce around against the Japanese yen, using the 112.50 level is a bit of a fulcrum. I believe that the market is trying to build a momentum, but we may get a little bit of a pullback. After all, we have exploded to the upside recently, and may need to build up more momentum to finally go higher. A little bit of exhaustion could do this pair some good, but in the end I believe that the US dollar rallies due to the interest rate differential in the 10 year market, and of course the shrinking of the Federal Reserve’s balance sheet. The Bank of Japan is light-years away from doing anything close to monetary tightening, and I believe that it will continue to drive this pair to the upside. I think that there is a target at the 114.50 level above which is the longer-term resistance area in consolidation, but if we can break above the 115 handle we are free to go much higher. Longer-term, this is exactly what I expect to happen.
Pullbacks at this point should continue to find support near the 108 handle, which has been supportive in the past. I believe that a breakdown below there would be somewhat negative for this market and send it much lower, but I don’t expect that to happen anytime soon. A look at these pullbacks as potential buying opportunities, and that longer-term “buy-and-hold” type of traders will continue to jump into this market place. With bonds offering more interest in the United States, that tends to favor the US dollar anyway, and as the differential is widening, I think that should only exacerbate this move. This will be especially true if the tax cuts in Congress get implemented as it should be a boon for the US economy.
Written by FX Empire